Earlier today Loblaw Co., Canada’s largest grocery chain announced they will buy Shoppers Drug Mart, Canada’s largest pharmacy chain.
The executive chairman of Loblaw (L:TSE,) Galen Weston, said this would create opportunities for brands from the two chains to appear in each other’s stores, and that the merger would give Loblaw greater buying power for health and wellness products. Not surprisingly Shopper’s (SC:TSE) stock price shot up 24% today which puts the value of the company very close to the $12.4 billion that Loblaw Co. is willing to pay for it. Shoppers own 1242 stores so on average each store is being bought for $10 million. No store closures are planned at this point.
Loblaw shares also went higher today. Normally when mergers are announced the larger company doing the purchasing loses some value in the short term because they are overpaying. But in this case the synergy works so well that both companies are looking to profit from this deal :0) Loblaw says they will save $300 million a year through efficiencies like by introducing their President’s Choice products into Shopper’s stores. Loblaws stock ended the day up $2.58 per share (5.43%) which adds about $725 million to the company’s market cap. The combined premium for both stores value is about $3 billion. So that’s like a 10% annual rate of return :0)
I don’t own either company yet, but now I’m thinking about buying some Loblaw because last year the combined revenue of L and SC was $42 billion but with this new merger I think they should be able to make at least 10% more per year. They will also have more buying power to lower their input costs like buying from manufacturers.
Here are some opinions from random people on the internet regarding this merger
- “I hope this means Shoppers prices will decrease with the power of a big supplier through Loblaws. I buy medication that is non prescription, and it usually costs more at Shoppers than other drug stores right now.”
- A few weeks ago Sobeys purchased Safeway. This week Loblaws purchased Shoppers. I am glad Canadian retailers are getting bigger and stronger instead of letting low life retailers like Walmart steam roll our Canadian home grown ventures.”
- “Oh good, Galen Weston can control the food that makes us sick and the medicine that makes us healthy.” (this one made me lol)
Random Useless Fact:
If you started with a dollar and double it every day. In 48 days you’ll have enough to buy every financial asset that exists on the planet, about $200 trillion.